UNUSUAL and desperate measures have been taken by both the public and private sectors to reduce costs in recent years. Financial restructuring often results with potential pay cuts. How would you cope if your pay was reduced by 5%, 10% or more?
Last year, the Government of St Lucia proposed some wage cuts in the public sector. Earlier in 2014, the Government of Barbados reduced the public sector workforce by issuing walking papers to thousands of workers.
By preparing yourself in advance, the impact of a reduction in your salary or the complete removal of your take-home pay may not affect you so much so quickly. There are many ways that you can plan your finances so that these reductions will not necessarily impact your life too much, but you will almost certainly need to change your current lifestyle.
A reduction in salary or no increase in your take-home pay for a few years, will affect you, because inflation continues and prices keep on rising.
The first step to take is to review your budget and see what you can afford with your new take-home pay. The worst action you can take is to seek a loan to bridge the gap, because this will cost you more each month and create further financial problems.
You may have to consider cutting down in some areas, perhaps only for a temporary period of time, or you might need to consider some of these cuts for a lot longer. Most individual’s cell phone bills could be slashed if you realistically set a new budget and cut out some of the casual phone calls and text messages that could help you cut back on your outgoings. Which of your outgoings can you re-negotiate? Insurance policies?Loans and mortgages?
Eating out will always cost you more than purchasing your own food and eating at home or preparing food to take to school, work and other events. Where you can cut down or cut out meals in nice restaurants, you will be facing a reality that your finances can be reduced greatly with a side-effect that your wellbeing may increase because you will be eating healthier.
These and others are very hard decisions to take, but where you act swiftly and effectively, you can rearrange your take-home pay to match your new living standards. It is better to be in control and accept inconveniences and small challenges than to be out of control, with no hope.
This is one of the main reasons why you should constantly reassess your income and your expenses and consistently monitor your budget so that you remain in control. Where you are able to divert 5% of your salary to a savings plan, each month, you will still be able to make some of the larger purchases that are required for your family or use as an emergency fund and manage to exist on your new lower salary and look forward to the day when your salary increases, which may not be too far away.
Samuel Rosenberg is the founder and CEO of Axcel Finance Ltd., the leading regional microfinance institution. Share your thoughts and email your questions to [email protected]